Pharmacy Counters are Closing in Droves. What Does It Mean?
Pharmacy counters have been a steady presence in grocery stores since the 1980s, but with rising competition, the counters are being sold off and shut down in droves across the county. It seems they just might be becoming one of the latest victims of the retail apocalypse.
According to The Wall Street Journal, grocery store pharmacies are getting hit on several fronts: these chains are often too small to leverage competitive reimbursement rates on drugs, they aren’t connected to big medical networks and insurers, and they lack the walk-in clinics/healthcare services that help drive traffic at stores like CVS, Walgreens and Walmart.
They’re at an uncomfortable crossroads between a shift in consumer habits and an industry-wide consolidation that has already scorched the earth of the mom-and-pop drugstores that used to sit on virtually every corner.
A major contributor to the shift has been the growth of online pharmacies. Why stand and wait in line every month, when you can have a 90-day supply of your prescriptions delivered right to your front door? Placing a pharmacy counter in the grocery store may be convenient, but it can’t compete with what e-pharma has to offer.
E-pharmacies have been growing steadily in popularity in recent years. Express Scripts and UnitedHealth’s Optum RX both had more prescription revenue in 2018 than perennial player Walmart, for example. In 2018, we also saw Amazon make a big move into the market, nabbing innovative online pharmacy PillPack for a cool $753 million.
According to Zion Market Research, the e-pharmacy market is projected to grow from $42.3 billion in 2018 to an estimated $107.5 billion by 2025, at a CAGR of about 14.26%. A more aggressive estimate from Coherent Market Insights projects it even higher, at $124.5 billion by 2025.
Either way, it’s sure to gouge profits from brick-and-mortar locations who rely on pharmacies to drive foot traffic. Kroger analysts estimate their pharmacy shoppers spend as much as 3X what non-pharmacy shoppers do. But few grocers have the kind of leverage Kroger has to make the pharmacy counter profitable.
Target, large as they are, seemed to see the writing on the wall back in 2015 when they sold their pharmacy business to CVS. In a 2016 Retail Dive article on the sale, Nick A. Egelanian, a retail expert at retail real estate services firm SiteWorks, explained, “Walgreens and CVS, what they have in common is they also own very large drug distribution businesses. If I’m Target, I‘m not in that [drug distribution], I’m probably better off to seek that CVS partnership, given the nature of that business. It had a lot to do with the inside game in that business.”
Without the leverage of large-scale distribution or the flexibility of eCommerce, many small-to-mid-size grocers are simply finding that it’s best to cut their losses.
California-based Raley’s Supermarkets recently shuttered 27 of their 96 in-store pharmacy locations. Commenting on the move, Raley’s Supermarkets CEO Keith Knopf recently told the Wall Street Journal, “There is the benefit of having a pharmacy relative to the grocery-sale lift and the convenience factor of having both in the store, but the economics do not work.”
What do you think about the shuttering of supermarket pharmacy counters? How do you think the closures will affect other categories for these retailers? We’d love to hear what you have to say. Sound off on social media now and join the conversation.